In a circular-flow diagram, spending on goods and services flows from households to firms and income flows from firms to households.

Question

Quizplus · Accepted Answer

This statement correctly describes the circular flow of income in a basic economy model. Households spend money on goods and services provided by firms, and in return, firms pay income to households in the form of wages, salaries, and profits.

In a Circular-Flow Diagram, Spending on Goods and Services Flows